The Downfall of Weil Gotshal

The Federal Reserve left interest rates unchanged, as markets expected, but Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of a quarter-point increase. The central bank upgraded its description of economic activity from “solid” to “strong,” while Chairman Kevin Warsh said officials remained “laser focused” on inflation, which is still too high and has not moved sufficiently toward the Fed’s 2% target. WSJ economics reporter Matt Grossman said the dissents show that momentum at the central bank is still leaning toward higher rates. Hammack’s vote was not surprising because she is among the committee’s more hawkish members and has dissented three times this year. Cook’s vote was more unexpected: she had never previously dissented during her four years at the Fed and is also the governor President Donald Trump is trying to remove. Asked why the Fed did not raise rates immediately, Grossman said Warsh argued that the central bank had already demonstrated its willingness to fight inflation through its September increase. The Fed can now wait for more economic data before deciding whether another hike is appropriate and what path should follow. Short-term Treasury yields fell during Warsh’s press conference, while the S&P 500 and Nasdaq each gained about 0.3%.

The episode then turned to Weil Gotshal, a white-shoe law firm founded in 1931 and known for handling major bankruptcies, including Lehman Brothers, General Motors and Enron. Despite generating more than $2 billion in revenue last year, the firm’s leaders told partners that they planned to dissolve it, after weeks of defections and failed efforts to find a merger partner. WSJ legal affairs reporter Erin Mulvaney said the warning signs became clear around August, when several prominent partners left. Weil had increased revenue and profit by roughly 3% to 4% last year, but the top 100 firms were growing at about 14%, while some major rivals were increasing profits by 20% or 30%. That relative stagnation left Weil less able to match the offers being made by faster-growing competitors. Mulvaney’s central point was that a law firm is “really only its talent”: if partners can obtain a better offer or lose confidence in the firm, the institution can become unstable quickly. The crisis intensified after Michael Aiello, a top deal maker who had been at Weil for 20 years and was often nearly synonymous with the firm, stepped down in September. Weil was already undergoing a leadership succession and looking for a merger partner. More partners, including members of the management committee, then defected. When merger talks collapsed, Mulvaney described the result as “a run on the bank.” She said the episode is not necessarily unique to Weil: the legal industry’s increasingly corporate, highly competitive economics make even prestigious firms vulnerable to a loss of partner confidence.

Flávio Bolsonaro, who lost Brazil’s presidential election on Sunday, left Brazil with his family for Argentina and then flew by private plane to Miami. WSJ national security reporter Vera Bergengruen said people close to President Trump helped arrange the move. Those contacts included Trump adviser Jason Miller, Steve Bannon and others in Trump’s inner circle. Bergengruen said direct U.S. government involvement was largely limited to obtaining visas, while Trump allies helped Bolsonaro enter Argentina, arrange the private flight and fast-track the paperwork needed to enter the United States. Bolsonaro is not expected to return to Brazil immediately. According to people who have spoken with him, he plans to remain in the U.S. and establish some kind of “shadow government in exile.” His allies hope to rally the Trump administration behind their unsubstantiated claims that President Luiz Inácio Lula da Silva rigged the election. Trump had not acknowledged the election result, even though more than 50 world leaders, including politicians from across Latin America’s political spectrum, had done so. Bergengruen said the White House was not expected to spend much political capital on the issue during the week before the U.S. midterm elections, but Bolsonaro’s supporters were preparing a campaign to persuade Trump to challenge or invalidate Brazil’s result.

A high-speed train crash in Spain killed at least 68 people and injured dozens more. According to the report, one train traveling at roughly 125 miles per hour rammed into the back of another train that had stopped on the tracks. It was the second major crash in less than a year on the high-speed route linking Madrid with Andalusia. The previous crash, near Córdoba in January, killed 46 people. Spain’s train drivers’ union nevertheless planned to proceed with a strike the following day to protest what it called the country’s inadequate rail safety. Prime Minister Pedro Sánchez said at a press conference that it was unacceptable for Spain to experience two high-speed train accidents in one year. The report presented the latest crash not simply as an isolated disaster but as part of a growing safety controversy. The union’s planned strike indicated that drivers wanted broader action, while the prime minister’s remarks acknowledged that the recurrence of major accidents had become a national concern. No further cause or official explanation for the collision was given in the episode.

The episode examined the widening gap between China’s official statistics and other signs that the economy is stagnating. Beijing reported that the economy grew 4.5% in the third quarter, but some Western analysts estimated full-year growth at only 0% to 3%. Skepticism has also spread among Chinese economists, particularly over the unemployment rate. WSJ reporter Katrina Northup said the official measure may miss the scale of underemployment. Many people technically have some employment and therefore are not counted as unemployed, but may work fewer hours, earn low wages, receive few benefits or otherwise have poor-quality jobs. She said this group may number in the hundreds of millions and is not accurately reflected in the unemployment rate. If the underlying figures are worse than the official data suggest, Northup said Beijing may need to provide more economic support. The government introduced stimulus during the summer and fall, but it was mostly incremental, and economists questioned whether it would be powerful enough. China has increasingly depended on exports because weak consumer spending and the prolonged property crash have weighed on domestic demand. More dependence on exports could intensify existing trade tensions with China’s partners. China’s National Bureau of Statistics did not respond to a request for comment, although it has defended the reliability of its data in the past. The program briefly noted that Wendy’s shares rose more than 15% after Nelson Peltz’s Trian Fund Management offered $1.4 billion to buy the company. Trian, a longtime Wendy’s shareholder, said the fast-food chain was at a “critical juncture” and would be better off private.